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Today most individuals, firms and authorities take it for granted that they can make rapid, simple and efficient payments without any unnecessary risks. When we pay by card, for instance, we do not need to think about which bank the recipient uses. We assume that the payment will reach the correct recipient anyway.
Payments can be made either using cash or by means of credit transfers between different accounts. Today the value of cash transactions in Sweden is negligible in relation to the value of account-based transfers.
Payment intermediaries are needed to manage account-based payments; these are usually banks and clearing organisations. If a credit transfer takes place between customers of the same bank, the bank’s internal systems are used. Some payments are also made in this way. However, in most cases the senders and recipients of payments have different banks. That makes it necessary to have a payment system, that is to say, an infrastructure between the banks to enable the execution of the transactions and ensure that payments reach the correct recipient relatively quickly.
It is only certain financial companies that have access to the payment system infrastructure. This means that individuals and firms must turn to these in order to use the system. It is extremely important that this infrastructure functions efficiently, in order to achieve low costs for making payments and because even low transaction costs can lead to significant costs to society in that each economic transaction entails a payment.
The banks' bank
A payment system usually consists of a set of accounts, a regulatory framework for coding and various EDP systems for communicating and implementing the actual transfers, or payments. The central point of the Swedish payment system is the Riksbank's RIX system. All banks have access to accounts in RIX; either directly or via an intermediary, that is to say, a clearing bank. When the banks make payments to one another they transfer funds via their accounts in RIX. The Riksbank can therefore be said to be the banks’ bank. The RIX system has a weekly turnover that corresponds to Sweden’s annual gross domestic product, GDP.
The major banks and a number of clearing organisations participate in RIX. A number of checks must be carried out before a payment can be cleared, including whether the transaction is correct and whether there are sufficient funds to cover the payments. The actual clearing process then consists of compiling instructions as to how the transfer should be implemented. It is only then that the actual transfer is made to the recipient's account, that is to say, the payment is settled. Only the settlement occurs in RIX.
Clearing organisations also manage transactions from the securities markets. These transactions comprise two parts: a payment and the transfer of an asset. In addition to the checks that need to be made for normal payments, there must be a check that the seller can supply the asset. The compilation of instructions as to how the transfer shall be made now applies to both the payment and the asset. The final settlement of the payment also takes place in RIX, while the asset is settled by VPC.
In some cases a process called netting is used, which entails setting off a number of claims and counterclaims between two or more parties and calculating a net figure. It is then only this net figure that is settled in the RIX system. The clearing organisations constitute an important part of the payment system and the financial infrastructure.
- VPC AB is the organisation where the exchange of money for securities takes place, both with regard to transactions in the stock market and transactions in the fixed income market.
- With regard to shares and derivatives in Sweden, the Stockholm Stock Exchange plays an important role in the financial infrastructure. However, it is primarily in its function as central counterparty and clearing organisation for derivatives that the Stockholm Stock Exchange has significance for the stability of the financial system.
- BGC is the clearing organisation for a large number of retail payments.
In addition, there are two international systems of significance to Sweden.
- Continuous Linked Settlement, CLS, is a system for clearing and settlement of foreign exchange transactions. The Swedish krona is one of the currencies included in CLS.
- In addition to the RIX system for Swedish kronor there is a corresponding system for making payments in euro, E-RIX. This system is part of a network of payment systems within the EU, known as TARGET (Trans-European Automated Real-time Gross settlement Express Transfer system).
The Riksbank compiles annual payment statistics for the Swedish financial infrastructure. The statistics are published both in The Swedish Financial Market and in two international publications called Blue Book and Red Book. More information about these publications can be found under “Payments in Sweden and other countries” (see the link below).
One of the Riksbank's tasks is to oversee the financial infrastructure. Security and efficiency are key words because an efficiently functioning payment system oils the wheels of the economy. A major disruption, however, could entail serious consequences for the economy as a whole.
The Riksbank's oversight of the financial infrastructure involves assessing the various payment and settlement systems according to common international standards. The Riksbank also carries out studies of risks and efficiency regarding the payment system and the use of various payment instruments such as cash, card payments and credit transfers. One such study is the article “Prices and costs in the Swedish payment system” in Financial Stability Report 2004:2, see the link below. By influencing various participants the Riksbank also attempts to reduce risks and increase efficiency in the systems. In addition, the Riksbank operates the central RIX payment system.